AOL TW Earnings to Miss Targets; More Strife to Come, Warn Executives

08 January 2002

AOL Time Warner warned Monday that its full-year 2001 fiscal results – to be released with Q4 figures at the end of January – will fall below targets revised downwards only four months ago. It also scaled back its expectations for 2002.

The media mammoth expects fourth-quarter EBITDA (earnings before interest, taxes, depreciation and amortization) to be 14% up year-on-year (to over $2.7 billion), on a 3% revenue rise.

Such results give the group full-year EBITDA of just under $10bn, an increase of 18% – below the 20% forecast after September 11, itself a revision from previous ambitious targets of 30% [WAMN: 25-Sep-01]. Revenues will be 5% up at $38bn, compared with September’s prediction of 5%–7%. These figures do not include Q4 charges of $1.5bn–$1.8bn relating to the declining value of investments.

Hard times are set to continue for AOL TW, which said its business plan for 2002 “assumes no recovery in the economy”. In the coming twelve months, the group expects EBITDA expansion of 8%–12% – a change from projections of “double digits” four months ago – with flat growth in Q1.

The greatest challenge facing AOL TW, and especially its America Online subsidiary, is the tough ad market, which executives said worsened in the second half of 2001. They predict the advertising sector will decline further in the next six months, ending 2002 flat or down.

In addition, AOL TW expects to write down $40bn–$60bn against Q1 earnings, under a change in the rules for reporting goodwill introduced by the Financial Accounting Standards Board. The massive write-down will “reflect overall market declines since the AOL Time Warner merger was announced.”

Finally, as expected [WAMN: 07-Jan-02] the group confirmed it will buy Bertelsmann’s 49.5% stake in AOL Europe for $6.75bn. The unit’s performance will be incorporated into AOL TW’s results from the start of this year.

News source: Wall Street Journal